Potential failure of NYCB is 'squarely off the table (for the time being),' analyst says

MW Potential failure of NYCB is 'squarely off the table (for the time being),' analyst says

By Steve Gelsi

Citi analyst sees a long road ahead for NYCB, with core deposit growth as key to success

New York Community Bancorp.'s turnaround plan under its new management team will keep the bank afloat for the time being after the lender faced speculation that it could fail, Citi analyst Ben Gerlinger said Thursday.

Gerlinger reiterated a neutral/high-risk rating on NYCB $(NYCB)$ after the bank's stock rallied 28% on its narrower-than-expected loss and its "path to profitability" over the next couple of years under new Chief Executive Joseph Otting.

Gerlinger said the risk of failure "is squarely off the table (for the time being)" after he saw the bank's first-quarter results.

However, NYCB needs to execute on three major fronts: grow its commercial banking presence, manage and shrink a "languishing" commercial real estate portfolio and grow core deposits, he said.

While some of the bank's targets "seem lofty" the management team "has the pedigree needed to move the bank in the right direction," Gerlinger said.

The bank faced a steep drop in its share price in March amid speculation about a potential failure, after it disclosed material weakness and signaled trouble with two commercial-real-estate loans, as Wall Street took notice of its exposure to stressed values of rent-regulated multi-family homes in New York City.

The bank then raised $1 billion in capital led by former Treasury Secretary Steven Mnuchin's private-equity firm and named Otting its CEO.

KBW analyst Christopher McGratty reiterated a market perform rating on NYCB and said the stock will likely remain range-bound between $3 and $4 a share for the time being.

"Low expectations and a roadmap to improved profitability drove shares nearly 30% higher on Wednesday," McGragtty said. "For the timebeing investors can breathe a sign of relief given this was the 'heavy lift /communication' quarter."

Looking ahead, the bank's path toward a "respectable" return on tangible common equity ( ROTCE) remains challenging and will take "significant time," he said.

Even with the big gain on Wednesday, NYCB's stock was down by 66.8% in 2024, compared to a 5.2% rise by the S&P 500 SPX.

-Steve Gelsi

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May 02, 2024 08:38 ET (12:38 GMT)

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